Indiabulls Real Estate – Questionable Operations

April 6, 2010

Kotak Securities analyst have blown the lid of IndiaBulls Real Estate shady operations. It looks like Kotak was not invited to the closed door Analyst meeting due to their transparent nature of coverage, anyway here is an excerpt from Kotak’s report,

IBREL, as of March 2009, had outstanding intercorporate deposits (ICDs) of Rs22.7 bn, down from the March 2008 level of Rs48.2 bn. The annual report of FY2009 indicates that Rs19.3 bn of ICDs have been given to subsidiary companies and we would like the management to give details of the same.

IBREL doesn’t consolidate certain subsidiaries as it indicates investments in equity shares of certain subsidiary companies and certain step down subsidiary companies have been acquired exclusively with the intention of disposal in the near future. Such companies have been excluded from consolidated financial statements.

IBREL does not give official details of their land bank. This leads to various market participants taking different estimates of land bank and creates uncertainty. Also, progress on business is currently not reflected in financial results as most of project launches over the past 12 months have still not reached the threshold of revenue booking.

IBREL’s subsidiaries have issued Rs13.8 bn of various structured instruments. Of the nine subsidiaries which issued these instruments, we have been able to identify corresponding projects for seven. These seven subsidiaries have issued total structured instruments of Rs10 bn while our NAV contribution from these subsidiaries is Rs6.5 bn. Key details that could be disclosed include (1) exact nature of these instruments, (2) valuations of the subsidiaries at which these investments were
made, and (3) duration of these investments and special clauses, if any.

IBREL has announced its intention to induct “M/s Sharma Goel & Co” in place of “Ajay Sardana Associates”. Investors have expressed concerns with respect to motive behind the change in auditor and also timing of the change. [Is this the nest Satyam Computers in making ? ]

IBREL promoters transferred their shareholding from direct names to holding companies. Investors would like to understand the management’s rationale for undertaking this move.

Is this company worth investment grade ? Not in our view, none of the IndiaBulls group company and we care less if Mittal or whoever has bought stake as the Management needs some Ethical & Legal lessons.